EXHIBIT 10.2
EXEL LOGISTICS, INC.
OPERATING SERVICES AGREEMENT
WITH
FAVORITE BRANDS INTERNATIONAL, INC.
JULY 27, 0000
Xxx Xxxxxxx, Xxxxxxxxxx Operations
TABLE OF CONTENTS
Page
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(S)1. DEFINITIONS...................................................... 1
(S)2. PERIOD OF AGREEMENT.............................................. 3
(S)3. SERVICES......................................................... 3
(S)4. REMOVAL AND DISPOSAL OF PRODUCT.................................. 6
(S)5. COMPENSATION AND TERMS OF PAYMENT................................ 7
(S)6. TAXES............................................................ 8
(S)7. SAFETY AND HEALTH................................................ 9
(S)8. RESPONSIBILITY FOR DAMAGE TO OR LOSS OF PRODUCT; LIMITATION OF
DAMAGES.......................................................... 9
(S)9. INVENTORY........................................................ 10
(S)10. INSURANCE........................................................ 11
(S)11. INDEMNIFICATION.................................................. 12
(S)12. EXEL'S EQUIPMENT................................................. 13
(S)13. FORCE MAJEURE.................................................... 13
(S)14. DEFAULT.......................................................... 14
(S)15. ASSIGNMENT....................................................... 17
(S)16. CONFIDENTIALITY AND NONSOLICITATION.............................. 17
(S)17. NOTICES.......................................................... 18
(S)18. INDEPENDENT CONTRACTOR........................................... 19
(S)19. COMPLIANCE WITH THE LAWS......................................... 19
(S)20. NONDISCRIMINATION................................................ 19
(S)21. RESERVATION OF RIGHTS............................................ 20
(i)
(S)22. SECTION HEADINGS............................................. 20
(S)23. GOVERNING LAW................................................ 20
(S)24. SEVERABILITY................................................. 20
(S)25. AUTHORITY.................................................... 20
(S)26. NO THIRD PARTY BENEFICIARIES................................. 21
(S)27. CONSTRUCTION................................................. 21
(S)28. GOOD FAITH................................................... 21
(S)29. TERMINATION OR EXPIRATION.................................... 21
(S)30. NOTICES...................................................... 24
(S)31. SURVIVAL OF PROVISIONS....................................... 24
(S)32. ENTIRETY..................................................... 24
(S)33. AMENDMENT.................................................... 24
(S)34. FACILITY LEASE............................................... 24
(ii)
OPERATING SERVICES AGREEMENT
This Agreement is made and entered into as of July 27, 1998, by and between
FAVORITE BRANDS INTERNATIONAL, INC., a Delaware corporation ("Customer") and
EXEL LOGISTICS, INC., a Massachusetts corporation ("Exel").
Exel provides warehouse and logistic services, including, among other
services, certain warehouse services for the receipt, storage, handling and
shipping of goods; and
Customer desires to use Exel's services with respect to certain of its
products and Exel is willing to provide the same on the terms and conditions
hereinafter set forth for the services; and
THEREFORE, in consideration of the premises and of the mutual covenants set
forth herein, the parties agree as follows:
(S)1. DEFINITIONS
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For the purposes of this Agreement the following definitions will apply:
"Applicable Procedures" mean those procedures with respect to the providing
of the Services set forth in the Manual or, if there is no Manual, those
procedures set forth in the Scope of Work attached hereto as Exhibit B (as the
same may be amended from time to time in accordance with (S)3(a)).
"Equipment" means that equipment and related items which are dedicated,
purchased or leased by Exel in order to provide the Services hereunder
(including certain hardware and related equipment located at the Facility or
used at the Facility which are necessary for the use of the inventory management
systems in performing the Services) and which are identified on Exhibit E, as
Exhibit E may be amended or modified by agreement of the parties to reflect
substitutions, additions or deletions thereto which may be beneficial or
necessary in order for Exel to provide the Services.
"Facility" shall mean that approximately 181,935 square feet of
warehouse/office space leased by Exel of an approximately 253,000 square feet
warehouse located at 00000 Xxxxxxxx Xxx, Xxxxxxx, Xxxxxxxxxx 00000 at which the
Services will be performed (the "Permanent Space"), or, as applicable, the
approximately 73,000 square feet of warehouse/office space to be leased by Exel
in the same building (the "Temporary Space"). The Temporary Space shall be
utilized to provide the Services until the Permanent Space is available, and
ready for the performance of the Services.
-1-
"Manual" means the dated and signed written procedures, if any, developed
or to be developed by Customer and Exel for the receiving, storing, handling,
shipping, transporting and disposing of the Product.
"Operating Parameters" means the Product Information Data, the type and
mixture of Product, volume and other key operating assumptions set forth on
Exhibit D which have been mutually developed and upon which, after the end of
the Cost Plus period as set forth on Exhibit C, the compensation elements are
partially based.
"Product" means those Customer goods identified on Exhibit A, which
Exhibit, may be amended to include (or delete) other goods manufactured, sold or
distributed by Customer, provided however, that (i) if such goods are similar in
nature to the goods currently listed on Exhibit A and providing or deleting the
Services for such goods would not constitute a change in the Scope of Services
and/or Operating Parameters then Customer shall give Exel at least 5 days
written notice of such amendment, (ii) if such goods are similar in nature to
the goods currently listed on Exhibit A and providing the Services for such
goods (or deleting the services for such goods) would constitute a change in the
Scope of Services and/or Operating Parameters then Customer must give Exel 30
days written notice of such amendment, and (iii) if such goods are dissimilar in
nature to the goods currently listed on exhibit A, then Customer must give Exel
at least 30 days written notice of such amendment and provided that in each case
if handling such goods would constitute a material change in the Scope of
Services or Operating Parameters, the compensation to be paid to Exel under this
Agreement may be adjusted in accordance with (S)5(b). In no event, without
Exel's prior written approval, shall Exhibit A be amended to include any
hazardous materials, goods requiring temperature controls inconsistent with
those available at the Facility, or any other goods inconsistent with the
storage of food grade goods, that require any special containment or that would
require any modification to the Facility.
"Product Information Data" means all pertinent information concerning any
special characteristics of the Product, including, but not limited to Material
Safety Data Sheets, safety and health data, toxicological information,
applicable environmental data, Customer's hazard communication program
procedures used to comply with labeling and transportation requirements and
OSHA regulations, any governmental (state, local or federal) regulations, and
such other information concerning the special characteristics of the Product and
the procedures known to or developed by Customer that are associated with the
receiving, storing, handling, shipping, transporting and disposing of the
Product.
"Replacement Cost" means Customer's actual manufacturing cost (using full
absorption costing in accordance with Generally Accepted Accounting Principles)
plus shipping and handling costs for the Product, less salvage value, if any.
"Scope of Services" means those services and procedures identified in
Exhibit B and the Manual, if any.
(2)
"Services" means, collectively, the providing of all services related to
receiving, handling, storing, staging for shipment ("shipment"), tendering for
outbound transportation ("transportation") and arranging for disposal of
Products at the Facility in accordance with this Agreement, the Applicable
Procedures, the Scope of Services and the Warehouse Services. The parties
acknowledge and agree that Exel's performance of the Services at the Temporary
Space May not be performed fully in accordance with the Scope of Work or the
Applicable Procedures. Any shipping, transportation or freight management
performed by Exel for Customer shall be governed by the terms and provisions of
a separate contract or contracts.
"Start-up Costs" means the start-up costs identified on Exhibit F. Exhibit
F sets forth the manner and timing of payment for the Start-up Costs and those
Start-up Costs that are to be amortized and the amortization period for the
same. If the parties agree, during the term of this Agreement, to any
additional matters of a similar nature that will be beneficial to the
performance of the Services, the parties shall agree upon the same in writing
together with the costs thereof and the reimbursement for the same, including
any amortization of such costs. If Exel does not actually incur all of the
Start-up Costs identified on Exhibit F, then Exel shall notify Customer of the
amount of expenses not incurred and Exhibit F shall be deemed amended to delete
such costs.
"Warehouse Services" means the customary services for the warehousing of
Product to be conducted at the Facility including, without limitation, the
receiving, storing, handling, shipping, transporting and disposing of the
Product.
(S)2. PERIOD OF AGREEMENT
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This Agreement shall be for a term commencing on July 27, 1998 and
terminating on September 30, 2003 unless earlier terminated as provided for in
this Agreement. Upon mutually agreeable terms and conditions, this Agreement may
be renewed. Any early termination of this Agreement shall be subject to the
provisions of (S)29, below, and, subject to the terms and conditions of this
Agreement, shall not relieve or release Customer or Exel from any rights,
liabilities or obligations that may have accrued under law or the terms of this
Agreement prior to the date of such termination. The parties acknowledge that
the lease for the Permanent Space may be renewed for three periods of five years
each, upon at least nine months prior written notice to the landlord thereunder.
If Customer intends to renew this Agreement, it must give Exel at least a
twelve-month notice before the expiration of the term, or any renewal term, of
its desire to extend the term hereof.
(S)3. SERVICES
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(a) General. Exel agrees to properly and economically perform the Services
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in accordance with the terms of this Agreement (including the Exhibits hereto)
and in accordance with the American Institute of Xxxxx'x standards applied to
food handling, storage and shipping. Exel shall provide sufficient, competent,
knowledgeable and fit personnel and, except as specifically set forth in this
Agreement, all equipment, machinery and other items, necessary to provide such
Services. Customer shall be entitled to revise or modify any of the Applicable
(3)
Procedures provided that Customer shall timely provide the requested
modifications to Exel and, if such modifications directly affect the cost of
performing the Services or affect the Operating Parameters, either party shall
have the right to request that the compensation payable to Exel for the Services
be adjusted (up or down) pursuant to (S)5(b) to reflect the change in Exel's
cost as a result of complying with the modification.
Customer agrees to timely inform Exel of and to provide Exel with the most
current information required by the Product Information Data and to timely
inform Exel of any Product (or any element thereof) which is, either in its
undamaged or damaged state, a hazardous substance or material (as defined under
applicable federal or state laws, rules or regulations) or if any Product has
special characteristics (whether in its undamaged or damaged state) which may
require special receiving, handling, storing, transporting, shipping or
disposing procedures. Customer, at Customer's costs, shall cooperate with Exel
in any training of Exel's personnel and compliance with governmental regulations
relating to any Product with special characteristics that are not referred to on
Exhibits A, B or D.
Each of the parties hereto agrees to notify the other of any significant
change in the management personnel of the Facility or the operations pursuant to
which the Services are rendered.
(b) Receipt and Storage. Exel shall receive and store, handle, stage for
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shipment, tender for outbound transportation or arrange for disposal of the
Product in accordance with the Applicable Procedures and the other terms of this
Agreement. All Product to be received and stored by Exel shall be delivered to
the Facility during the Facility's normal business hours, properly marked and
packaged for handling and storage and a manifest for the same shall be furnished
to Exel identifying the Product and specifying, if inconsistent with the terms
of this Agreement or any Exhibit hereto or the Applicable Procedures, the
warehouse procedures or type of storage or other services to be performed. If
Customer requires Exel to conform to any special receiving, handling,
transporting, shipping, disposing or inventory procedures or other services not
previously agreed to or identified in the Applicable Procedures, Customer shall
timely provide Exel with prior notice thereof and Exel shall comply with such
procedures or provide such services provided they are timely requested and
reasonable. If such Services, are not within the Scope of the Services and
directly affect the cost of providing the Services, either party shall have the
right to request that the compensation payable to Exel for the Services be
adjusted (up or down) pursuant to (S)5(b) to reflect the cost of complying with
the same. Any extra charges or costs shall be reduced or eliminated if the
changed procedures or special considerations no longer exist. Customer shall be
responsible for notifying Exel in writing in advance of delivery of any Product
that has special characteristics not previously disclosed to Exel which may
affect the receiving, storing, handling, shipping, transporting or disposing of
such Product or which may affect the Facility or other goods stored in the
warehouse of which the Facility is a part. Unless otherwise expressly agreed or
unless identified as part of or within the intended type of the Product set
forth on Exhibit A, Exel may refuse, without liability of any kind, to accept
any Product having special characteristics which might adversely affect the
Facility, other goods in the warehouse, cause property damage or personal injury
or (except those identified on or within
(4)
the type of Product identified on Exhibit A), that are classified as a hazardous
material or substance, as defined by any applicable federal, state or local
statute, law, rule or regulation, or which, pursuant to any applicable federal,
state or local law, rule, regulation now or hereinafter enacted or which,
pursuant to any lease for the Facility or any covenant, condition or restriction
on or for the Facility, would make the same unlawful or impermissible. In any
such event, Exel shall promptly notify Customer of its refusal to accept any
such Product and the reasons for its refusal and shall return the same to its
originating point.
(c) Receiving and Shipping Charges. Exel shall not be liable for receiving
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or shipping charges of any kind, including without limitation, demurrage or
detention charges, unless such charges are the result of Exel failing to comply
with the terms of this Agreement or Exel's negligent acts or omissions.
Customer shall pay and shall indemnify and hold Exel harmless from any and all
such charges or costs, except for those resulting from Exel's negligence, for
which Exel shall indemnify and hold Customer harmless. The provisions of this
subparagraph shall survive the termination of this Agreement.
(d) Ownership of Products. Customer shall be the owner of the Product at
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all times that the Product is in the custody of Exel and shall not ship or
cause the Product to be shipped to Exel as named consignee. If Product is
shipped with Exel as named consignee, Customer shall notify the carrier
in writing (or by facsimile transmission) prior to shipment that the named
consignee is a warehouseman and that Exel has no beneficial title or interest in
the Product. If Customer fails to so notify the carrier, Exel may refuse to
accept the Product, without liability of any kind for any loss, injury or damage
to the Product so shipped, and the same shall be returned to its originating
point or Exel may accept the same but Customer shall indemnify Exel from and
against any and all costs associated therewith.
(e) Inbound Damage; Storage Conditions. Damaged Product received by Exel
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shall be noted and handled in accordance with the Applicable Procedures. If, in
the reasonable judgment of Exel, Product delivered to Exel or which is in
Exel's custody may cause or is likely to cause infestation, contamination, or
property damage or personal injury, Exel may refuse, without liability of any
kind, to accept the Product or require Customer to remove the same, as
applicable. If such condition requires Exel to act promptly, it may, upon
written notice to Customer, remove the Product and ship the same to the
originating point at Customer's cost and expense and Exel shall incur no
liability to Customer for such removal.
(f) Shipment and Transfer. Instructions to Exel to load and ship Product on
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outbound vehicles will not be effective until received by Exel in writing;
provided, however, Customer may authorize and instruct Exel to rely on
electronically transmitted instructions from Customer. Exel will not be liable
for any loss or error in connection with the shipment of Product that results
from instructions received by Customer which can be demonstrated by Exel to
contain data transmission or other errors which affect the clarity of the
instructions.
(5)
Within the times set forth in the Applicable Procedures, Exel will load and
ship Product on outbound vehicles (common or contract carrier or Customer-owned
vehicles) for delivery to Customer's consignees.
Exel shall ship all Product from the Facility on a FIFO basis, as provided
for in the Applicable Procedures. If Exel's failure to follow the Applicable
Procedures results in unsalable Product, Exel shall be liable to Customer,
subject to the provisions of (S)8, for the cost of such unsalable Product at the
Replacement Cost.
Priorities for shipment of Product are established by the Applicable
Procedures. Customer shall provide Exel in writing with Customer's approved list
of carriers to be utilized for the shipping of Product. Such approved list may
be changed from time to time by timely written notice to Exel. Customer shall
provide Exel with instructions to determine the priority utilization of the
approved carriers and once the Product is signed for by the carrier, Exel shall
have no responsibility for any loss or damage to Product thereafter occurring.
For any Product containing special characteristics that are hazardous
substances or materials, Customer agrees to timely furnish Exel with all correct
and proper information and instructions to permit Exel to prepare the same for
shipment, including shipping papers and certifications, in a manner which
conforms such shipments with all applicable governmental regulations. Customer
appoints Exel as its agent for the purposes of preparing the shipments and
signing the certifications and shipping papers covering the shipment. Customer
shall indemnify Exel against all losses and other damages, including fines,
penalties or charges, which Exel may incur (including reasonable legal
expenses), resulting from Customer's failure to provide any such accurate and
timely information.
(g) Key Performance Indicators. Contemporaneously with the revisions to
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Exhibit C establishing a new rate structure after the end of the initial Cost
Plus Period (as defined in Exhibit C), Exel and Customer agree in good faith to
develop a set of key performance indicators and methodology for determining and
measuring the indicators, together with default and remediation provisions to be
used to measure performance standards for the Services performed on Product
warehoused at the Facility. If the parties are unable to agree as to such key
performance indicators and related issues within such time period (or any
extension thereof as the parties may mutually agree), then this Agreement may be
terminated by either party upon 120 days prior written notice to the other. Such
termination will be effective at the end of such notice period (during which
period the parties will continue to perform their respective obligations at the
rates then if effect or as otherwise agreed to).
(S)4. REMOVAL AND DISPOSAL OF PRODUCT
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(a) Damaged or Unsalable Product. Damaged or unsalable Product is to be
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removed from the Facility within a reasonable time after occurrence or
notification of the existence of such damaged or unsalable Product as may be
provide for in the Applicable Procedures. If no
(6)
such Procedures exist, Exel shall notify Customer in writing of such damaged or
unsalable, Product and shall request instructions on how to handle such Product.
If Exel does not receive instructions 15 business days after Customer received
such notice then Exel shall have the right, absent instructions by Customer to
the contrary, to remove the damaged or unsalable Product by shipping to the
originating point at Customer's cost without any liability to Exel.
Notwithstanding the foregoing, Exel shall have the right to immediately remove
and dispose of any Product that presents a health or sanitation hazard upon
notice to Customer, at Customer's cost and without any liability to Exel.
(b) Waste Removal and Disposal. If non-hazardous waste is generated
--------------------------
from the Product, Exel shall dispose of the same. Exel and Customer shall
confer, if deemed necessary by Exel, to determine if such waste is hazardous.
For any hazardous waste that is generated from the Product during Exel's
performance of the Services, Customer shall be considered the waste generator
and waste transporter. Exel's obligations with respect to such hazardous waste
shall be limited to preparing such waste for pickup at the Facility in
accordance with Customer's procedures for pick-up and disposal by a Customer-
approved and licensed carrier or transporter for disposal at a permitted and
licensed disposal site. Exel shall not liable or responsible for the actual
disposal of such hazardous waste.
(S)5. COMPENSATION AND TERMS OF PAYMENT
---------------------------------
(a) General. Customer agrees to compensate and pay Exel for the
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Services as provided for in the schedule of rates and compensation set forth in
the attached Exhibit C. Customer shall pay the same in the time and manner
provided for in Exhibit C. If Customer disputes any invoices (or any part
thereof), Customer shall provide Exel with written notice of such dispute within
30 days of receipt of such invoice. Customer shall, however, pay that portion of
the invoice not in dispute. Any such amount not in dispute and not paid within
the time provided for in Exhibit C shall bear interest at the rate of one
percent (1)% per month. Additionally, if any disputed portion of such invoice is
later paid by Customer, or is determined subsequently to be due and owing to
Exel, Customer shall also pay Exel interest on such amount from the original due
date at the rate of one percent (1)% per month. The compensation set forth on
Exhibit C is full compensation for all Services and other activities to be
provided by Exel under this Agreement. Except as specifically set forth in this
Agreement, Exel shall be responsible for paying all of the costs and expenses
necessary to provide the Services and to otherwise comply with the terms of this
Agreement.
(b) Operating Parameters or Scope of Service Changes. Notwithstanding the
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compensation provisions of Exhibit C, if (i) Customer requests a change to the
Scope of Services or Applicable Procedures that directly affects the cost of
providing the Services or (ii) during any year of this Agreement the Services or
Operating Parameters materially vary from those set forth on Exhibit D to this
Agreement, either party shall be entitled to notify the other party of the same
and the parties shall endeavor in good faith to mutually agree upon a temporary
or permanent adjustment to the compensation payable to Exel as promptly as
possible. If such agreement is reached, it shall be evidenced by a writing
signed and dated by the parties and the applicable
(7)
rates for the affected Services shall be adjusted to reflect the same. The
parties acknowledge that, depending on the nature of the Operating Parameters or
Services variation and the estimated continuation of the same, no single
variation or series of variations taken in the aggregate may justify a cost or
rate adjustment but the parties also acknowledge that the contrary can be true
and each party agrees to cooperate with the other and to exercise good faith in
any such determination. If the parties cannot fully agree as to a temporary or
permanent adjustment, then, either party may elect, upon 120 days prior written
notice to the other, to terminate this Agreement effective upon the end of such
notice (during which period the parties will continue to perform the respective
obligations at the rates then in effect or as otherwise agreed to).
(c) Annual Compensation Review. The fees and rates set forth in Exhibit
--------------------------
C, as may be amended from time to time, shall be reviewed and may be
redetermined effective annually at the beginning of each contract year. Within
120 days prior to the beginning of each contract year, Customer shall submit to
Exel projected volume forecasts of Product thru-put for the next succeeding
contract year together with any anticipated and known changes to the Operating
Parameters and/or Scope of Services. Exel, within 60 days after receipt of the
same, shall submit to Customer the proposed schedule of rates and compensation
for the next succeeding year, together with documentation supporting any
requested rate adjustment. Exel and Customer shall endeavor in good faith to
mutually agree as to the new schedule of rates and compensation to be used for
the succeeding year within 30 days after Customer's receipt of the proposed
schedule of rate and compensation. Such redetermined rates, even if agreed to
after the beginning of the contract year, will become effective, unless
otherwise agreed, as of the first day of such contract year. Any such
redetermined rates shall be reflected upon a revised Exhibit C, dated and signed
by the parties, which shall be attached to this Agreement. If the parties cannot
agree in good faith to any adjusted schedule of rates and compensation within
such 30 day period (or any extension thereof as the parties may agree), then,
this Agreement may be terminated by either party upon 120 days prior written
notice to the other. Such termination will be effective at the end of such
notice period (during which period the parties will continue to perform their
respective obligations at the rates then in effect or as otherwise agreed to).
(d) Performance Incentives. On or before the twelve-month anniversary of
----------------------
operations at the Permanent Space, Exel and Customer agree that they shall
negotiate in good faith an addendum to this Agreement that will provide for a
performance incentive program or gainsharing program based upon agreed
assumptions and parameters. If the parties are unable to agree as to the terms
and scope of such a program within such time period (or any extension thereof as
the parties may mutually agree), then this Agreement may be terminated by either
party upon 120 days prior written notice to the other. Such termination will be
effective at the end of such notice period (during which period the parties will
continue to perform their respective obligations at the rates then if effect or
as otherwise agreed to).
(S)6. TAXES
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Customer agrees to either pay directly or to reimburse Exel for all
property taxes, licenses, charges and assessments imposed by any properly
constituted governmental authority
(8)
upon Exel's Equipment, the Product or the Services. Such payment or
reimbursement shall include any federal, state or local taxes, levies, imposts,
duties, fees or other charges now or hereafter assessed which are levied or
based on or related to any of the Services, supplies and/or materials provided
or to be provided by Exel under this Agreement but shall not include any income
taxes based solely on or measured by the income of Exel and Exel shall be
responsible for paying directly any social security or withholding, unemployment
or similar taxes. If, because of the nature of Exel's activities any of the
Services, supplies and materials provided or to be provided or consumed
hereunder or because of Customer's activities or status with such taxing
authorities, there exists an exemption for any such taxes, levies, imposts,
duties, fees or other charges to be paid or reimbursed hereunder, Customer and
Exel shall cooperate in obtaining any such exemption.
(S)7. SAFETY AND HEALTH
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Exel shall comply with health, safety, environmental and other practices
that are required by applicable governmental laws, rules and regulations.
Customer shall assist Exel in identifying those that may be necessary because of
the nature of the Product. If Exel is required to alter or modify the Facility
in any way, or Exel is required to obtain any special governmental permits or
licenses or to provide special training to its employees, in order to comply
with such laws, rules and regulations and such actions are necessary as a result
of the nature of the Product that was not identified on or otherwise apparent
from the Scope of Services or the Applicable Procedures available at the time,
then, Customer shall pay for the costs of the same. Customer acknowledges that
Customer has the responsibility of informing Exel of any special characteristics
of the Product and to keep the Product Information Data current.
(S)8. RESPONSIBILITY FOR DAMAGE TO OR LOSS OF PRODUCT: LIMITATION OF
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DAMAGES
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(a) General Exel in providing the Services shall exercise such care
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with respect to the Product under its custody as a reasonably careful man would
exercise under like circumstances (including, as appropriate, those set forth in
the Applicable Procedures) and shall not be liable for loss or damage which
could not have been avoided by the exercise of such care and Exel shall not be
liable for any such loss or damage to the extent caused or contributed to by the
negligent acts or omissions of Customer (including, without limitation,
Customer's failure to timely and fully inform Exel of any special
characteristics with respect to the Product or to provide current and updated
Product Information Data), or Exel's non-negligent performance of the Applicable
Procedures or any deviations therefrom specifically requested or authorized by
Customer. Exel shall not be liable for any loss or damage to Product occurring
prior to or subsequent to its custody of the Product which shall commence when
Exel accepts receipt of such Product for prompt unloading at the Facility and
shall terminate when such Product is placed with a carrier for shipment unless
such loss or damage results from Exel's improper care in loading the Product.
Exel shall not be liable for any shipments dropped at the Facility which is not
to be promptly unloaded at the Facility until such shipment is actually unloaded
by Exel. Additionally, Exel shall only be liable for unsalable product or loss
(i) caused by infestation or contamination that occurs at the Facility due to
Exel's negligence, but not as a result of infested or contaminated Product
delivered to the Facility, or (ii) caused by temperature failure resulting
(9)
from Exel's negligence in maintaining or monitoring the temperature control
equipment and not as a result of temperature failure resulting from events
outside of Exel's reasonable control.
(b) Maximum Liability Per Occurrence. In case of loss or damage to Product
--------------------------------
for which Exel is liable hereunder because of its failure to exercise such
care, Exel's liability, subject to the damage and loss allowance provisions of
the next succeeding paragraph, shall be limited to Customer's Replacement Cost
for the Product lost (including mysterious disappearance or unaccounted for
goods) or damaged and its liability shall be limited to $5,000,000 per
occurrence.
(c) Damage/Shrinkage Allowance. Customer acknowledges that some damage or
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loss to Customer's Product at the Facility may occur during the performance of
the Services. Customer, therefore, in consideration of the rates and
compensation to be paid to Exel, agrees (i) that Exel shall be entitled to
the damage allowance set forth on Exhibit C which must be exceeded prior to
Exel being liable for any damaged Product, and (ii) Customer further recognizes
that the results of a physical inventory or cycle counts may not account for all
of Customer's Product which purportedly were received by Exel and that
shortages or overages may exist due to accounting or other errors, and,
therefore, agrees that Exel shall be entitled to the annual shrinkage allowance
set forth on Exhibit C which must be exceeded prior to Exel being liable for any
shortages of Product.
(d) Claims. Claims for lost or damaged Product must be made in writing no
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later than 120 days after the annual physical inventory provided for by the
Applicable Procedures; provided, however, either party shall notify the other of
any single occurrence of loss or damage in excess of $100,000 for which, subject
to the damage and shrinkage allowance, a claim may be maintained. No action may
be maintained by Customer for loss or damage to Product unless a timely written
claim has been given as provided for above and unless such action is commenced
within 12 months from the date of such written claim.
(e) Waiver and Release. Notwithstanding anything in this (S)8 to the
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contrary, Customer hereby waives and releases for itself and its insurers, any
and all rights of recovery, claim, action or cause of action, against Exel, its
agents, contractors, officers or employees for loss or damage to Product that is
within the damage and loss allowance and/or in excess of $5,000,000 per
occurrence and Customer covenants that no issuer shall hold any right of
subrogation against Exel. The failure of Customer to secure an appropriate
clause in or endorsement to its respective insurance coverage, which waives the
right of subrogation as provided for above, shall not in any manner affect the
intended waiver and release and, if Customer's insurance company seeks
subrogation against Exel because of the absence of such a waiver and release,
Customer shall defend, indemnify and hold Exel harmless from and against such
subrogation claim.
(10)
(S)9 INVENTORY
---------
(a) Records. Exel shall maintain complete records of the Product received
-------
by it showing quantities received and shipped, inventory on hand, damaged or
lost Product, plus any other information or records required by the Applicable
Procedures. Exel shall also provide reports on the foregoing as provided for by
the Applicable Procedures.
(b) Inventory Accounting. A physical inventory of all Product received by
--------------------
Exel and periodic cycle counting shall be conducted by Exel as provided for by
the Applicable Procedures and at the termination of this Agreement. Exel will
take physical inventories or cycle counts beyond those provided for therein as
requested by Customer at Customer's expense. Customer's duly authorized
representatives shall have the right to be present at any physical inventory and
shall have the right to visit, observe and inspect the Facility, the Product and
upon reasonable notice to inspect inventory records at any time during Exel's
normal business hours.
(c) Access. Customer acknowledges that, if its employees or agents have
------
access to the inventory management system with the ability to make inventory
adjustments and other similar adjustments affecting the inventory status of the
Product at the Facility, Customer agrees that its employees and agents shall
not make any such adjustments without prior written notification to Exel. If
such adjustments are inadvertently made without such prior notification,
Customer, upon becoming aware of the same, shall cause written notification to
be promptly given to Exel together with the reasons for such adjustments. If
such access exists, Exel shall have 90 days to reconcile any inventory
discrepancy and Customer shall cooperate with Exel in any such reconciliation.
If Exel can reasonably demonstrate that any unaccounted for Product was
attributable to any such adjustments, Exel shall not be responsible for the
same.
(d) Reconciliation. Inventory shortages or overages from the physical
--------------
inventories or cycle counts taken at the Facility shall be determined by netting
shortages and overages across all commodity groupings of Product, either at the
time of the annual physical inventory or as provided for in the Applicable
Procedures. Net shortages or overages determined after the first annual physical
inventory shall be carried over to the second annual physical inventory and
shall be applied against net shortages or overages determined after the second
annual physical inventory at which time there shall be a reconciliation of
shortages and overages. If after the second annual physical inventory, there are
net shortages for unaccounted Product for which Exel is liable, Exel shall be
liable, subject to the provisions of (S)8, for the unaccounted for Product at
the Replacement Cost. After the second annual physical inventory, shortages and
overages from each succeeding year shall be carried over and reconciled as
provided for in this (S)9(d).
(S)10. INSURANCE
---------
(a) Exel. Exel shall maintain General Commercial Liability Insurance
----
(written on an "occurrence" basis), including contractual liability coverage,
with combined single limit of bodily injury and property damage in the amount of
no less than $5,000,000; Automobile Liability Coverage (written on an
"occurrence" basis), with a combined single limit for bodily
(11)
injury and property damage in the amount of $1,000,000; Warehouseman's Legal
Liability coverage in the amount of $5,000,000 per occurrence, which amount
shall be Exel's maximum liability for loss or damage to Product per occurrence,
no matter how caused, property insurance in an amount equal to the replacement
value of the Equipment (excluding Customer-owned equipment as provided on
Exhibit E), subject to any deductible, and Worker's Compensation Insurance as
required by the law of the State in which the Facility is located. Such
insurance shall be carried with an insurance company licensed to do business
in the state where the Facility is located and with a rating from AM Best of A7
or higher. Customer shall be named as an additional insured on all such
policies. At Customer's request, Exel shall provide to Customer certificates of
insurance evidencing the insurance coverage set forth above.
(b) Customer. Since Warehousemen's Legal Liability insurance provides
--------
coverage with respect to the Product only when Exel is liable for the loss or
damage to Product because of its failure to exercise the standard of care set
forth in (S)8, above, Customer, at its option, shall be responsible to provide
insurance for its Product at the Facility to cover loss or damage to the Product
not caused by: (i) Exel's failure to exercise the standard of care set forth in
(S)8, above, (ii) which is less than the damage and shrinkage allowances set
forth on Exhibit C, and (iii) for loss or damage to Product caused by Exel's
failure to exercise the standard of care set forth in (S)8, above, over the
maximum amount per occurrence.
(S)11. INDEMNIFICATION
---------------
(a) Exel. Exel shall indemnify, defend and hold Customer harmless against
----
liability, loss or expense resulting from or relating to (i) Exel's performance
of the Services at the Facility or the operation of the Facility; (ii) the
negligent acts or omissions or willful misconduct of Exel or its employees or
agents in the performance of the Services, provided, however: (i) the provisions
of this (S)11(a) shall not apply to loss or damage to Product, such loss or
damage being governed by the provisions of (S)8; or (ii) the provisions of this
subparagraph shall not apply to the extent such liability, loss and expense is
caused or contributed to by the negligence or willful misconduct of Customer
(including Customer's failure to timely and fully inform Exel of any special
characteristics with respect to the Product or to provide Exel with current and
updated Product Information Data).
(b) Customer. Customer shall indemnify, defend and hold Exel harmless from
--------
and against any liability, loss or expense resulting from or related to (i)
Customer's acts, omissions or willful misconduct at the Facility; (ii) the
negligent acts or omissions or willful misconduct of Customer or its employees
or agents in the performance of its obligations under this Agreement; provided,
however, this indemnity shall not apply to and Customer shall not be considered
to be liable hereunder for any such liability, loss or damage or expense to the
extent caused or contributed to by negligence or willful misconduct of Exel.
(c) Indemnified Claims. The liability, loss or expenses covered by the
------------------
indemnities set forth above are with respect to claims, settlements, judgments,
court costs, reasonable attorney's fees and other litigation expenses arising
out of injury to or death of any person including
(12)
employees of Customer or Exel or damage to property (except, with respect to
Exel, any loss or damage with respect to Product shall be governed by the
provision set forth in (S)8, above). Each of the parties agrees that promptly
after becoming aware of any exposure which the other party may have under these
indemnification provisions, such party shall provide the other with written
notice thereof, together with such other information as may be required to
evaluate the other party's obligations and liabilities under this (S)11. Each
party shall have the right to defend any such action by counsel reasonably
acceptable to the other.
(d) No Consequential Damages. Notwithstanding any of the provisions of
------------------------
(S)8 and this (S)11 to the contrary, neither party in the performance of
their obligations under this Agreement, except as specifically set forth in this
Agreement, shall be liable to the other for any indirect or consequential
damages (such as, but not limited to: loss of profits, loss of business, loss of
customer goodwill or punitive or exemplary damages) even if the parties have
been advised of the possibility of the same, and without regard to the nature of
the claim or the underlying theory or cause of action (whether in contract, tort
or otherwise).
(S)12. EXEL'S EQUIPMENT
----------------
Customer and Exel agree that in order for Exel to provide the Services,
Exel shall dedicate, purchase or lease the Exel Equipment with respect to the
Services. Upon expiration or early termination, Customer and Exel shall have
those obligations and rights with respect to Exel's Equipment as provided for in
(S)29.
Exel, with respect to the Exel's Equipment, shall be considered the owner
or lessee for federal income tax and other purposes. Exel shall be responsible
for maintaining and repairing such Equipment in accordance with industry
standards. Exel's Equipment as listed on Exhibit E may be revised from time to
time by the mutual agreement of the parties. Upon any such revision, if the same
requires an adjustment to Customer's reimbursement obligations, the same shall
be evidenced in writing at the time that such Exhibit is revised.
(S)13. FORCE MAJEURE
-------------
(a) General. Neither party shall be liable to the other for failure to
-------
perform its obligations under this Agreement to the extent such performance is
prevented by an act of God, strikes, fire, flood, explosion, civil disturbance,
interference by civil or military authority, accident, labor disputes or
shortages, or because the continuation of the Services at the Facility would be
in violation of any future governmental laws, rules or regulations or would
cause or create any material safety, health or environmental concerns or for
other causes beyond the reasonable control of the party and not intentionally
caused by such party ("Force Majeure"). Except that a Force Majeure event shall
not include any performance prevented directly by a strike, labor dispute or
shortage of Exel's employees at the Facility. Upon the occurrence of such an
event, the party seeking to rely on this provision shall promptly give written
notice to the other party of the nature and consequence of the cause. Each party
shall use all reasonable efforts to minimize the effects of a Force Majeure
event. If a Force Majeure event occurs with
(13)
respect to any of the services or obligations of the parties under this
Agreement and such Force Majeure event is estimated to last beyond a period of
time so that a parties' obligations or services are materially disrupted, the
parties shall agree as to alternative temporary arrangements, the temporary
cessation of services and/or obligations or the termination of this Agreement.
During the period of any Force Majeure, services and the compensation for the
same shall be equitably adjusted but, unless otherwise agreed to by Exel,
nothing herein shall be construed to relieve Customer from paying any costs
associated with the Facility or any unamortized costs for Exel's Equipment or
start-up costs as the same are due and payable under the provisions of Exhibit
C, except to the extent that such costs are reimbursed to Exel pursuant to any
policy of insurance. The provisions hereof shall not apply to monetary amounts
due or owing by either party to the other. If a Force Majeure event with respect
to the Services is estimated to last longer than 60 days, either shall be
entitled to terminate this Agreement upon written notice to the other.
(b) Facility. If any Force Majeure event with respect to the Facility
--------
occurs (such as partial or total destruction to the Facility by fire or other
casualty), Customer shall not unreasonably withhold or delay its consent, unless
the parties elect to terminate this Agreement by reason thereof, to move the
Product to a temporary storage location at which the Services shall thereafter
be provided until the Facility can once again be used for the providing of the
Services. The cost and expense of transporting the Product to and from the
Facility and to and from an alternate Facility and rent and other operating
expenses associated with an alternate Facility shall be paid for by the
Customer.
(S)14. DEFAULT
-------
(a) Customer. If Customer fails to pay or compensate Exel for the Services
--------
within the time period set forth on Exhibit C, then within 30 days after notice
thereof by Exel, Exel, upon 30 days prior written notice to Customer, shall have
the right to terminate this Agreement and/or exercise its warehouseman's lien
rights against Customer's Product, as provided for under applicable law, all
without limitation (except as specifically set forth in this Agreement) to any
and all other rights under law or equity which Exel may have against Customer.
If Customer breaches any other of its obligations hereunder and the same is not
corrected within 30 days after written notice thereof by Exel to Customer, Exel
shall have the right to require immediate payment of all unpaid charges, costs
and expenses owed it by Customer and, upon 30 days prior written notice to
Customer, terminate this Agreement and exercise its warehouseman's lien rights
against Customer, as provided for under applicable law, for any outstanding
amounts owed by Customer to Exel. Additionally, Exel shall be permitted to take
any other legal or equitable action (except as specifically limited in this
Agreement) against Customer that Exel deems appropriate or necessary.
(b) Exel. If Exel materially breaches any of its obligations hereunder,
----
Customer shall give written notice thereof to Exel and if Exel does not
substantially cure or correct the same within 30 days of such notice, Customer
shall have the right to terminate this Agreement upon 30 days prior written
notice to Exel given no later than 60 days after such 30 day period and
(14)
Customer shall be permitted to take any other legal or equitable action (except
as specifically limited in this Agreement) against Exel as Customer deems
appropriate or necessary. Customer, however, shall, prior to such termination
and removal of Product, pay to Exel any and all amounts due Exel up to such
termination. Customer shall not have the right to offset any amounts owed by
Customer to Exel against any amounts due Customer by Exel.
(c) Bankruptcy. Notwithstanding anything to the contrary contained herein,
----------
either party may terminate this Agreement upon 30 days prior written notice to
the other party in the event that such other party is adjudicated bankrupt,
files a voluntary petition in bankruptcy, makes an assignment for the benefit of
creditors or seeks protection against creditors under any applicable Federal or
state laws, or if there is a commencement of any bankruptcy, insolvency,
receivership, or other similar proceeding against the other party which is not
dismissed within 120 days after such filing.
(d) Limitations. Notwithstanding anything to the contrary contained
-----------
herein, neither party, except as specifically set forth in this Agreement, shall
be (i) liable to the other for any consequential or indirect damages
(including, but not limited to: loss of profits, loss of business opportunities,
loss of customers or customer goodwill, or punitive or exemplary damages)
resulting from a party's breach or default, even if the parties have been
advised of the possibility of the same, and without regard to the nature of the
claim or the underlying theory or cause of action (whether in tort, contract or
otherwise), or (ii) responsible for any breach or default of their obligations
to the extent caused by the acts or omissions of the other.
(e) Early Termination by Customer. In addition to Customer's rights to
-----------------------------
terminate this Agreement described elsewhere in this Agreement, Customer shall
have the right to terminate this Agreement with or without cause, upon
one-hundred eighty days written notice to Exel, subject to and upon the
following terms and conditions:
(1) Customer may not give notice of termination of this Agreement
without cause prior to the twenty-fourth month after the date hereof;
(2) Customer shall pay a termination fee (separate and apart from any
obligations pursuant to (S)29 of this Agreement) ("Termination Fee") of an
amount equal to the present value ("Present Value") of Exel's average
monthly net profit for the six months prior to the notice of such
termination multiplied by the number of months that would otherwise have
remained in the term of this Agreement but for this early termination (not
taking into account any renewal option). The Present Value shall be
calculated using a discount rate of ten percent (10%).
(3) Customer shall pay all costs outlined in (S)29 of this Agreement.
(f) Early Termination by Exel. In addition to Exel's right to terminate
-------------------------
this Agreement described elsewhere in this Agreement, Exel shall have the right
to terminate the Agreement if Customer or its permitted successors or assigns
(which includes any purchaser of
(15)
all or substantially all of the assets of the Customer as provided for in
Section 15) fails to comply with the following:
(1) If Customer defaults under its payment obligation under its
senior secured credit facility (as the same may be amended, replaced, or
modified from time to time), defaults under any financial covenant therein,
or the payment of the obligation thereunder is accelerated for any reason,
Customer shall immediately notify Exel and, within 15 banking days thereof,
Customer shall, without notice from Exel, provide Exel with an
unconditional, irrevocable letter of credit from a financial institution
reasonably acceptable to Exel and upon terms and conditions reasonably
acceptable to Exel, in an amount equal to the unamortized start-up costs
and unamortized equipment costs set forth on Exhibits F and E,
respectively. Such letter of credit shall have a term equal to the lesser
of twelve months and the term of this Agreement. If a letter of credit with
a term less than the remaining term hereof is obtained, Customer shall be
responsible for renewing and providing to Excel such renewed letter of
credit at least 30-days prior to the expiration of such letter of credit,
to remain in compliance with the terms hereof. The face amount of the
letter of credit may be reduced, on a quarterly basis, as the amount of the
unamortized start-up and equipment costs decrease. If Customer is no longer
in default (as described above) under its then existing senior secured
credit facility, Customer, upon at least 15 days prior written notice to
Exel, may discontinue its letter of credit. If at any time thereafter
Customer breaches any of the above provision of its then existing senior
credit facility, Customer shall obtain a letter of credit in compliance
with the terms of this section.
(2) If Customer's credit rating on its most senior secured
credit facility from Standard & Poor's rating service falls below B-, Exel
may, at its sole option, deliver the Assignment and Assumption Agreement
(defined in (S)15) to the Landlord of the Facility, and from that point
forward, Customer shall be personally responsible for all costs covered by
the lease for the Facility and Schedule C shall be adjusted to reflect such
change. If Exel delivers the Assignment and Assumption Agreement, as
described above, Customer shall have the right to terminate this Agreement
upon 120 days written notice, subject to the provisions of (S)29.
(3) Customer shall provide Exel with its fiscal quarterly
unaudited and fiscal year-end audited financial statements in a timely
manner, and in any event, no later than the same must be delivered to the
lender of the then existing senior secured credit facility.
(4) If Customer fails to maintain a senior credit facility at
any time, the parties shall mutually agree upon a replacement for the
provisions hereof. If such agreement can not be reached within 30 days,
this Agreement may be terminated upon 60 days notice by either party.
(g) Cross Default. If Customer or its permitted successors or assigns, or
-------------
Exel terminates any other agreement that each may have with the other pursuant
to which Exel
(16)
manages a different facility and provides similar services thereat as the
Services due to an uncured breach of such other agreement by the other, then
the terminating party, at its option, may also terminate this Agreement by
giving 180 days prior written notice to the other party.
(h) Termination. Termination of this Agreement by reason of default of
-----------
the other party shall not relieve or release either party from any rights,
liabilities or obligations which have accrued to it prior to the date of such
termination, or any of the rights, liabilities or obligations set forth in
(S)29.
(S)15. ASSIGNMENT
----------
The rights and obligations under this Agreement are personal to each party
and shall not be assignable by either party in whole or in part without the
prior written consent of the other party; provided, however, (a) so long as such
assigning party remains liable under this Agreement for the performance of all
of its assignee's obligations under this Agreement and evidences the same in
writing in a manner reasonably acceptable to the non-assigning party or if the
assigning party provides a written guaranty reasonably acceptable to the non-
assigning party from a guarantor reasonably acceptable to the non-assigning
party, either party may assign its rights or obligations under this Agreement to
an entity which it controls or which controls it or with which it is under
common control and (b) Customer, upon written notice to Exel at least ten days
prior to any such action becoming final (and subject to the penultimate sentence
of this paragraph) may assign its rights and obligations under this Agreement
without the consent of Exel to a purchaser of all or substantially all of the
assets of Customer. Notwithstanding anything else contained in the Agreement or
this (S)15 to the contrary, Customer shall not have the right to assign to any
party or cause the assignment to any party (by operation of law or otherwise)
that certain Assignment and Assumption of Lease for the Facility, attached
hereto as Schedule 1, unless and until Customer obtains from the Landlord of the
Facility is written consent to such assignment or assumption and such landlord's
written and full release of Exel under the lease for the Facility from and after
the effective date of such assignment or assumption. Subject to the foregoing,
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of the parties hereto.
(S)16. CONFIDENTIALITY AND NONSOLICITATION
-----------------------------------
(a) Confidential Information. Customer acknowledges that material and
------------------------
information which Customer may acquire about Exel's inventory management
software programs, staffing methods, financial or other accounting systems and
Exel's other procedures and processes relating to the Services being provided
hereunder are considered by Exel to be proprietary and confidential. Exel
acknowledges that material and information which Exel may acquire about
Customer's Product, volume, customers, pricing and procedures and processes are
considered by Customer to be proprietary and confidential. Each party agrees
that all such information acquired by the other hereunder shall be held in
confidence during the term of this Agreement and for a period of three (3) years
following the termination or expiration of this Agreement and, during such
periods, each party shall not reveal or use any such information without the
other party's prior written consent. Each party shall disclose such information
only to those who have
(17)
reasonable need to know the same in connection with the performance of this
Agreement. Neither party shall have any obligation, however, to preserve the
confidentiality of any such information which: (i) is generally known in the
industry or generally available to the industry; or (ii) was in the possession
of or disclosed to the other prior to the date hereof, free of any obligation to
keep the same confidential; or (iii) is lawfully acquired by the other from a
third party under no obligation or confidence to the other party; or (iv) which
a party is obligated under law or court order to disclose.
(b) Personnel. Customer and Exel acknowledge and agree that the
---------
personnel employed by each in the performance of or in connection with the
activities of the parties contemplated by this Agreement are important assets of
the respective companies. Therefore, except as described below, without the
prior written consent of the other, neither Customer nor Exel shall solicit for
employment the employees or the officers of the other (or of any of their
subsidiaries or their affiliates) for employment by them or any affiliate or
subsidiary of either of them. Such nonsolicitation shall be for the period of
this Agreement and for a period of one year after the termination of this
Agreement. Notwithstanding the foregoing, if this Agreement is terminated by
Customer pursuant to (S)14(b), (S)14(e) or (S)14(f), then Customer shall have
the right to solicit and hire the non-management employees of Exel who provide
services under this Agreement.
(c) Remedies. Exel and Customer further agree and acknowledge that a
--------
monetary remedy for a breach of this (S)16 may be inadequate and that such
breach would cause each of the companies irrevocable harm. In the event of a
breach of the provisions of this Section, each of the parties will be entitled,
without the posting of a bond, in addition to any monetary damage it may
subsequently prove, to temporary and permanent injunctive relief, including
temporary restraining orders, preliminary injunctions and permanent injunctions.
The provisions of this section shall survive the termination of this Agreement.
(S)17. NOTICES
-------
Any notice required or which may be given hereunder shall be in
writing and shall be delivered personally, or sent by certified, registered or
express mail, postage prepaid or shall be sent by facsimile transmission or by
overnight courier (provided evidence of receipt can be verified). The addresses
to which written communications shall be directed may depend upon the subject
matter of such communication. The parties agree that, with respect to the
following subject matters, notification shall be sent as follows:
(18)
With respect to invoices and communications of all types shall be sent
to Exel at:
Exel Logistics, Inc,
000 Xxxxx Xxx
Xxxxx Xxxxxxx, XX 00000
Attention: Xxx Xxxxxxx
Facsimile#: 000-000-0000
With respect to payments to be sent to Exel, the same shall be sent
to: Exel Logistics, Inc., X.X. Xxx 0000, X-0000, Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000-0000.
and to Customer at:
Favorite Brands International, Inc.
00 Xxx-Xxxxx Xxxxxxxxxxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxx (with a copy to the General Counsel)
Facsimile#: (000)000-0000
Notice shall be deemed delivered when personally delivered, and shall be
deemed delivered by certified, registered, or express mail or overnight courier
when a receipt is signed, and by facsimile transmission one (1) business day
after the facsimile transmission is sent.
(S)18. INDEPENDENT CONTRACTOR
----------------------
It is understood that Exel's employees and the equipment and facilities
used by Exel shall be under its direction and control. Exel's relationship to
Customer shall be that of an independent contractor. Nothing in this Agreement
shall be construed to constitute Exel, or any of its employees, as agents,
employees or, partners of Customer; provided, however, Exel shall be considered
as Customer's agent for the limited purpose of acting as a "shipper" or
"receiver" of Product.
(S)19. COMPLIANCE WITH THE LAWS
------------------------
Exel agrees that in the performance of the Services under this Agreement,
it will comply with all applicable laws, rules, regulations of governmental
authorities and, to the extent that there is a conflict between the compliance
of such applicable laws, rules, regulations of governmental authorities with
those of Applicable Procedures, Exel shall be permitted to comply with the
applicable laws, rules, regulations of governmental authorities; provided,
however, it shall notify Customer promptly of any such conflict. Customer shall
currently and promptly keep Exel advised of any known applicable laws, rules and
regulations of governmental authorities affecting or relating to the Product
which Customer reasonably believes will affect the Services.
(19)
(S)20. NONDISCRIMINATION
-----------------
Exel agrees to comply with all applicable nondiscrimination laws, rules,
orders and regulations of governmental authority, including, but not limited to,
Executive Order 11246, and the rules and regulations promulgated thereunder, the
Rehabilitation Act of 1973, and the Vietnam Era Veterans Readjustment Act of
1974. Additionally, Exel shall comply with all applicable provisions of the Fair
Labor Standards Act of 1938, as amended.
(S)21. RESERVATION OF RIGHTS
---------------------
Customer's or Exel's waiver of any of its remedies afforded hereunder or
by law is without prejudice and shall not operate to waive any other remedies
which such parties shall have available to it, nor shall such waiver operate to
waive such party's right to any remedies due to a future breach, whether of a
like or different character; provided, however, except as otherwise may be
specifically provided for in this Agreement, neither party shall be liable to
the other for any consequential or indirect damages.
(S)22. SECTION HEADINGS
----------------
All headings of the Sections and subsections of this Agreement are inserted
for convenience only and shall not affect any construction or interpretation of
this Agreement.
(S)23. GOVERNING LAW
-------------
This Agreement shall be governed by and construed under the laws of the
State in which the Facility is located and each party agrees that venue and
jurisdiction will rest solely in such State and the courts located therein.
(S)24. SEVERABILITY
------------
The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
(S)25. AUTHORITY
---------
The parties represent that they have full corporate power and authority to
enter into and perform this Agreement and the parties know of no contract,
agreement, promise or undertaking which would prevent the full corporate
execution and performance of this Agreement, and the persons executing this
Agreement on behalf of the parties are duly authorized to do so and have the
authority to bind such parties.
(20)
(S)26. NO THIRD PARTY BENEFICIARIES
----------------------------
This Agreement is entered into solely between, and may be enforced only by,
Customer and Exel and their permitted successors and assigns and this Agreement
shall not be deemed to create any rights in third parties, including without
limitation, suppliers and customers of a party, or to create any obligations of
a party to any such third parties.
(S)27. CONSTRUCTION.
------------
This Agreement shall not be construed as if it had been prepared by
one of the parties, but rather as if both parties had prepared the same.
(S)28. GOOD FAITH
----------
Each party agrees that, in its respective dealings with the other party
under or in connection with this Agreement, it shall act in good faith.
(S)29. TERMINATION OR EXPIRATION
-------------------------
Upon expiration of this Agreement or if there is an early termination of
this Agreement prior to its stated term for any reason provided for or permitted
by the provisions of this Agreement, the parties agree as follows:
(a) Dedicated Assets/Costs
----------------------
(1) In order to provide the Services, Exel has either
purchased or leased all or substantially all of the Exel Equipment
necessary to provide the Services. For any Exel Equipment owned by Exel,
the depreciation schedule for the same for the purposes of this Agreement
are as set forth in Exhibit E. Such depreciation schedule shall be used to
determine the "book value" of such owned Exel Equipment for the purposes of
subparagraph (b) hereof, with the commencement of such depreciation
beginning on the beginning date of the term of this Agreement.
(2) Exel has also committed time and resources and made other
expenditures with respect to the start-up of the Services. The start-up
costs and amortization for the same, as applicable, are set forth on
Exhibit F.
(3) Exel has also specifically leased the Facility for the
providing of the Services and as a result has incurred certain obligations
for the period of the Agreement under its lease.
(b) Obligations With Respect to Dedicated Assets/Costs
--------------------------------------------------
(21)
In consideration of the matters set forth in paragraph (a), the parties
agree that, upon the expiration of this Agreement or an early termination, the
following shall apply:
(1) Exel Equipment. Customer, with respect to the Exel Equipment
--------------
owned by Exel, shall either (i) purchase the Exel Equipment which is in
functional operating condition, normal wear and tear excepted, at Exel's
"book value" or (ii) request that Exel sell the same for the benefit of
Customer. Any Exel Equipment that has a "book value" of zero shall be
purchased by Customer for $1.00. In no event shall Customer have the right
to purchase any of Exel's proprietary software. For Exel Equipment
purchased by Customer, Exel shall provide Customer with a xxxx of sale free
and clear of all liens and encumbrances. For the Exel Equipment sold on
behalf of Customer, Customer shall be responsible for all necessary and
direct out of pocket "selling costs" incurred by Exel (such as commissions,
taxes and transportation and handling costs). If the Exel Equipment is sold
for a price which is less than the "book value" of the Exel Equipment plus
selling costs, Customer shall pay to Exel the difference between the "book
value" plus the selling costs and the sale price. For the purpose of this
(S)29, Exel's cost of selling the Exel Equipment shall include Exel's
finance cost or carrying cost for such Equipment (other than depreciation)
from the date of expiration or early termination to the date of such sale.
If the selling price is greater than the "book value" plus the selling
costs, Exel shall pay the difference to Customer. For the purposes of this
(S)29, the "book value" shall be the depreciated value of the Exel
Equipment as carried on Exel's books at the time of early termination or
expiration. If any Exel Equipment is leased, Customer shall pay to Exel any
lease termination fees or penalties or shall, subject to the lessor's
approval, assume such leases. If Customer requests Exel to sell the Exel
Equipment, Exel shall use all commercially reasonable efforts to sell the
Equipment within 120 days of such request. If Exel is unable to sell the
Exel Equipment within the 120 days, Customer shall be obligated to purchase
the Exel Equipment at the book value existing at the time of expiration or
early termination. The amounts payable to Exel under this (S)29 for the
initial purchase of the Exel Equipment by Customer shall be paid at the
expiration or early termination of this Agreement (or for such Equipment
which could not be sold in a timely manner, within 15 days of receipt of
Exel's invoice for the same) and, for Exel Equipment which is sold on
behalf of Customer, Exel or Customer, as applicable, shall pay any amounts
due hereunder within 15 days after such sale upon Exel providing reasonably
appropriate supporting documentation concerning such sale, and for any
leased Exel Equipment, Customer shall either assume the leases at the
expiration or early termination of this Agreement or pay any lease
termination fees or penalties within 15 days of receipt of Exel's invoice
for the same with reasonably appropriate supporting documentation. Exel
shall use all reasonable commercial efforts to mitigate Customer's
obligations hereunder by identifying if any of the Exel Equipment can be
used in its other business operations, and if so, with respect to any such
Exel Equipment which can be so used, Customers shall pay Exel for any
transportation and related costs associated therewith.
(2) Account Receivables and Start up Costs. Customer shall pay to Exel
--------------------------------------
(i) the balance, if any, of any account receivables owed by Customer to
Exel which are due
(22)
and owing to Exel through the date of termination or expiration (unless any
part of such receivable is in dispute, in which case Customer shall pay the
undisputed portion and, once resolved, the disputed portion); and (ii) the
valance, if any, of any unamortized start-up cost set forth on Exhibit F
(or any other amortized costs or other expenditures subsequently agreed to
by the parties), not theretofore fully amortized or paid or reimbursed by
Customer to Exel. Such amounts shall be payable on or before the date of
expiration or early termination.
(3) Facility. Unless the leases for the Facility (including
--------
leases for both the Temporary Space and the Permanent Space) terminate
concurrently with such early termination (such as because of a damage or
destruction of the Facility or a taking by eminent domain), then Exel shall
assign and Customer shall assume such lease or leases (a copy of which has
been provided to Customer by Exel on or prior to the date hereof or will be
provided as soon as available) together with all of Exel's obligations
thereunder from and after the effective date of such termination (which
effective date shall be the date of such early termination) together with
any vendor contracts relating to the Facility (such has HVAC and fire
protection maintenance contracts, trash removal, ets.). Prior to such
assignment and assumption, Exel, Customer and the landlord shall conduct an
inspection of the Facility and shall identify those items of damage,
repair, deferred maintenance or other items including accrued rent and
operating expenses that Exel shall be responsible for under such lease and
prior to such assignment and assumption Exel shall either pay the agreed
upon amount to perform the same or shall perform the same at Exel's cost.
Such assignment and assumption shall provide that Exel indemnifies Customer
from any of the lease obligations incurred prior to the assignment and
assumption and that Customer indemnifies Exel from any of the lease
obligations occurring subsequent to the assignment and assumption.
(c) Survival The provisions of this (S)29 shall, as applicable,
--------
survive the early termination or expiration of this Agreement and may be
independently enforced as a contractual agreement independent of the other
terms and conditions of this Agreement. If a party fails or breaches its
obligation under the provision of this (S)29, the other party shall have
the right to exercise any and all remedies available to it by law or
equity, Each party shall timely make payments and/or execute and deliver
any any and all documentation reasonably necessary to fulfill the
requirements of this (S)29.
(S)30. INSPECTIONS
-----------
(a) Customer Inspections. All books and records maintained by Exel
pursuant to this Agreement shall be made available to Customer upon reasonable
notice for inspection and copying during Exel's business hours. During the term
of this Agreement, Customer shall have the right to send one or more of its
authorized employees, agents or customers to observe and inspect the Facility.
The foregoing rights are subject to the following conditions: (i) any employee
or agent of Customer shall be accompanied at all time by an employee or agent of
Exel; (ii) any such inspection shall not unreasonably disrupt the operations of
the Facility or Exel's other
(23)
operations or business; (iii) access to Exel's internal cost allocations and
pricing and/or management reports shall be limited to the extent Exel deems to
be reasonably necessary to protect proprietary financial information or other
information related to other Exel customers or operations; and (iv) any costs
associated with copying or producing information shall be borne by the Customer
and is outside the Scope of Services. Customer shall be under no obligation to
undertake any such inspections and whether or not Customer inspects the Facility
shall not affect or release Exel from any of Exel's obligations under this
Agreement.
(b) Government Inspections Exel shall notify Customer immediately of any
----------------------
inspection or audit performed by any federal, state or local agency or of any
other information that indicates the presence of any agent, substance or
condition which is or may be considered by health authorities as being
indicative of either unsanitary practices or of public health concern. Exel
shall immediately provide Customer with copies of the results or reports of all
such inspections or audits and shall take all steps necessary to correct any
items raised in such reports or of which Exel may otherwise become aware.
(S)31. SURVIVAL OF PROVISIONS
----------------------
The expiration or termination of this Agreement shall not affect the
provisions, and the rights and obligations set forth therin which either: (a) by
their terms state or evidence the intent of the parties that the provisions
survive the expiration or termination thereof, or (b) must survive to give
effect to the provisions thereof.
(S)32. ENTIRETY
--------
This Agreement, together with the attached Exhibits (which are incorporated
herein as part of this Agreement), embodies the entire understanding between
Customer and Exel with respect to the subject matters addressed herein and
therein and there are no agreements, understandings, conditions, warranties or
representations, oral or written, expressed or implied, with reference to the
subject matter hereof which are not merged herein. This Agreement shall take the
place of and entirely supersedes any oral or written contracts or agreements
that deal with the same subject matter as referenced herein. Except as otherwise
specifically stated, no modification hereto shall be of any force or effect
unless reduced to writing and signed by both parties and expressly referred to
as being modifications of this Agreement.
(S)33. AMENDMENT
---------
This Agreement shall not be amended or modified except in writing by both
parties.
(S)34. FACILITY LEASE
--------------
Exel shall not amend the lease for the Facility ("Lease"), without the
prior written consent of the Customer, which consent shall not be unreasonably
withheld or delayed. If the term of this Agreement is extended as provided in
(S)2 hereof, Exel shall extend the term of the Lease. If the
(24)
term of this Agreement is not extended as provided in (S)2, hereof, Exel will,
at Customer's request, either inform Landlord that Customer desires to renew the
term, or, will deliver the Assignment and Assumption Agreement to the Landlord
so that Customer will be the tenant under the Lease and can renew the Lease in
its own name.
IN WITNESS WHEREOF, the parties have caused this Agreement to executed by
their duly authorized representatives.
EXEL LOGISTICS, INC. FAVORITE BRANDS INTERNATIONAL, INC.
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE]
--------------------------- ---------------------------
Title: CEO Title: Executive Vice President CFO & CCO
------------------- ----------------------------------
Date: 8/12/98 Date: 8/5/98
-------------------- ----------------------------------
(25)
LIST OF EXHIBITS/SCHEDULES
Exhibit A....................................... Product Description
Exhibit B....................................... Scope of Services
Exhibit C....................................... Compensation Schedule and
Damage and shrinkage Allowance
Exhibit D....................................... Operating Parameters
Exhibit E....................................... Exel Equipment
Exhibit F....................................... Start Up Costs
Schedule 1...................................... Lease Assignment and
...................................... Assumption
(2)
EXHIBIT "A"
PRODUCT DESCRIPTION
Candies
Marshmallows
Caramels
Other confectionery products
(3)
EXHIBIT "B"
SCOPE OF SERVICES
The Scope of Services that Exel will provide to Favorite Brands includes the
following, and will be further defined by the Applicable Procedures (including
certain minimum key performance indicators, to be refined and expanded in
accordance with (S)3(g) of the Agreement) to be mutually agreed upon by both
parties no later than September 1, 1998:
. Exel will provide to Customer temporary warehousing to allow Customer to
conduct its business during the startup period (i.e., the period prior to the
Permanent Space being ready and available to warehouse Product). The Temporary
Space will be cooled to Customer specifications with portable cooling units.
Exel will provide all necessary equipment and personnel to receive in
merchandise for Customer. The Temporary Space will be used only until the
Permanent Space is completed. The Temporary Space cost is projected to be
similar to the Permanent Space cost. The primary purpose of the Temporary
Space will be for storage of product only. If the Permanent Space is not
completed by the time Customer requires shipping services, the Temporary Space
will be utilized for shipments. At that time, all in scope services will apply
to the Temporary Space with the exception of the data system, which will
become operational in the Permanent Space. All costs associated with the
Temporary Space will either be billed, as appropriate, as an operations cost
pursuant to Exhibit C, or as an unamortized start-up expense pursuant to
Exhibit F.
. Provision, management and operation of 181,935 square feet of temperature
controlled space to be located at 00000 Xxxxxxxx Xxx, Xxxxxxx, Xxxxxxxxxx
00000 (the "Facility"). The nominal temperature within the storage and working
areas of the Facility will be 75 degrees Fahrenheit. Exel will provide all
racking, material handling equipment, data processing equipment and furniture
and fixtures necessary to manage the Facility and perform the operations (and
shall be reimbursed for the same as provided in Exhibits C, E & F).
. Provision of all required permits and licenses to operate the Facility.
. Administration and management of the site and personnel, including maintenance
and repairs of the Facility, sanitation, pest control and security.
. TOPEX Warehouse Management System (Non-RF) with no modifications or
customization except as provided in Section "D" Operating Parameters (the
parties acknowledge that Topex will not be available at the Temporary Space).
. Receiving of product into the Facility and entering into inventory.
(4)
. Inspection of inbound product of exterior product cartons for observable
defects or damages plainly and readily visible to the human eye, comparison
with Purchase Orders and Bills of Lading, and segregation as required in
the Applicable Procedures.
. Put away into storage.
. Processing and picking of outbound orders.
. Staging and loading of outbound orders onto carriers.
. Product rotation according to FIFO and/or Lot Code requirements as
specified in the Applicable Procedures.
. On-site inventory accounting and control, as further specified in the
Applicable Procedures.
. Cycle counting of inventory, as further specified in the Applicable
Procedures.
. Annual physical inventory (the parties acknowledge that the cost of the
same will not be included in the cap on the variable rate set forth in
Exhibit C, but will be subject to Exel's full margin as set forth therein).
. Handling of Product Recalls for inventory within the Facility.
. Scheduling outbound loads according to customer provided Routing Guide.
. Returns processing at normal levels (not to exceed 2% of shipments)
. Exel will cooperate with and assist Customer in obtaining any available
incentives related to the Facility from governmental units.
. Exel and Customer shall agree as to necessary reports regarding activities
at the Facility and performance of the Services (the costs of reports not
agreed to by both parties shall be outside the Scope of Services)
The following activities are specifically NOT within the basic Scope of
Services. These would be performed at additional cost if requested by Favorite
Brands and agreed to be Exel. Exel will not perform any services outside the
Scope of Services unless if first notifies Customer that such services are
outside the Scope of Services, although Exel reserves the right to perform
services outside the Scope of Services in order to maintain the Product or the
Facility in the case of an emergency where prior notice is not reasonably
feasible.
. Special services outside the normal shipping and receiving activity. When
required, these will be performed and charged at the Hourly Labor Rates.
(5)
. Co-packing, packaging services or displays
. Fleet management, freight management, local cartage or shipment
optimization
. Sales or sales support
. Handling of Rail Cars
. Drop lot service
. Sourcing or purchasing of raw materials
. Product recall for product outside the Facility
. CHEP pallet accounting
. Chep pallet transfers to or from GMA pallets
. Forecasting
. Inventory Management
. Recoup or Repackage of Product
. Product quarantine
. OVERTIME for special or rush services. Warehouseman will obtain Depositor's
approval for overtime rush services and special requests.
HOURS OF OPERATION:
. Days of week: Monday through Friday
. Normal Operating Hours: 6:00 am to 9:00 pm
. Shifts: 1+
. On-Call: 24-hour availability
. Holidays: To be determined
OPERATIONAL INDICATORS
(6)
. Exel shall be prepared to ship Product, if available at the Facility, upon
receiving written notice from Customer, by the end of the next normal
business day (or within 24-hours, if such 24-hour period ends within such
business day),
. Until replaced by specific Applicable Procedures and Key Performance
Indicators, Exel will perform the Services in accordance with standard
industry practices.
(7)
EXHIBIT "C"
COMPENSATION SCHEDULE AND DAMAGE
AND SHRINKAGE ALLOWANCE
Cost Plus Period
----------------
Beginning as of the effective date of the Agreement, Exel and Favorite Brands
agree that the compensation structure will be Cost Plus a 16% margin until the
end of the period ending two months after normal operations commence at the
Facility. Normal operations are defined as the first month that all of the
following exist inclusively at the Facility:
1. Topex is utilized as the warehouse management system.
2. All tenant improvements are completed.
3. Actual throughput and other operating parameters are within 15% of the
amounts projected in Exhibit D (under the heading FBI/Xxxxxx) of this
Agreement for three consecutive months.
In consideration for the Services to be provided by Exel under this Agreement
during the Cost Plus Period, Exel shall be compensated on a cost plus basis
calculated upon the actual cost and expenses incurred in providing the Services
plus a 16% operating margin (Cost Plus 16%) before overhead (8% net when an
overhead provision of 8% is considered). Margin (in $'s) is calculated by
dividing the operating expenses by one minus the operating margin of 16% (the
reciprocal of the margin) and then subtracting the operating expenses. An
example of the margin calculation is included below:
Total operating expenses for the month $175,000
--------
One minus the 16% margin (the reciprocal of the margin) 84%
Total Cost to Favorite Brands with Exel's Margin included $208,333
Total operating expenses for the month (from above) $175,000
--------
Total Margin at 16% $ 33,333
The Cost Plus 16% margin will apply to any services performed directly by Exel,
including those at either the Temporary Facility or Permanent Facility
(including all costs of operating the Temporary Facility except for costs
specifically set forth on Exhibit F as start-up costs), that may be outside the
Scope of Services. Materials which are not used or provided by Exel in the
normal course of operations, as described in the Scope of Services, which are
purchased on behalf of Customer will be billed at the actual cost plus a margin
of 12% (margin as defined above).
During the Cost Plus Period, but not until after the first 30-days of operations
in the Permanent Space, if the variable cost per pallet (including the 16%
margin), on a monthly basis, exceeds $9.71
(8)
per pallet, Exel shall forgo its 8% net margin on all costs above $9.71 per
pallet, but shall be entitled to a margin of $.78 per pallet regardless of the
total variable cost per pallet.
Exel will not xxxx Customer for any costs under Exhibit C that have been billed
or are intended as part of the Start-up Costs on Exhibit F (although it is
acknowledged that some cost categories on Exhibit F are costs that would be
incurred in the normal course of operations and may, if incurred after the
commencement of the Services in the Permanent Space, be appropriate to be billed
under this Exhibit).
For invoicing purposes, costs and expenses will be separated as fixed or
variable and treated as follows:
FIXED COSTS
Fixed Costs (at Cost Plus 16%) will be invoiced in advance on the first day of
each month. Exel will provide Favorite Brands, at Favorite Brands request,
documentation to support the amount of such Fixed Costs. Fixed Costs, to the
extent that they are unknown at the beginning of the month, will be estimated by
Exel, Fixed costs will be reconciled against actual Fixed Costs at the end of
each month, or at the end of the month in which Exel receives confirmation of
the actual cost, if later. Any adjustment shall be invoiced to Favorite Brands
or paid to Favorite Brands by Exel by the 15/th/ of the following month.
Included in the fixed category are:
Real Estate Costs - These costs include all facility related expenses such as
-----------------
the base lease cost (including any tenant improvements included in the base
lease cost), depreciation and associated interest on any Exel funded property
improvements, real estate taxes, building insurance, common area maintenance,
sanitation, utilities, facility maintenance and repair, and security.
Equipment Costs - This includes all material handling equipment depreciation,
---------------
office equipment, and associated interest as defined in Exhibit E of this
Agreement. A specific listing of this equipment is attached in Exhibit E of this
Agreement. Changes to the equipment listed in Exhibit E may require an
adjustment to the Fixed Costs.
Systems - These costs include amortization of systems hardware, amortization of
-------
implementation charges and testing (to the extent not included in the start-up
costs), and software and hardware support costs. The software support costs are
based on an allocation represented as the IT Allocation. The IT Allocation is
based on the Non-storage revenue of the operation and is expected to represent
the software maintenance of the Exel internally developed software system,
TOPEX. The IT Allocation is currently $35,816 annually, however, this amount is
reviewed annually based on the actual cost to support the TOPEX system and
adjusted accordingly. Based on the current method of allocation to the sites on
TOPEX, the IT Allocation would increase to $53,723 if the non-storage revenue of
the operation increased to $2 million annually.
(9)
Site Management and Benefits - Site management wage and benefit costs for the
----------------------------
site management team are included in the fixed costs. Specifically, the General
Manager, and Warehouse Supervision are included.
Operational Administrative Expense - Includes telephone, office cleaning,
----------------------------------
uniforms, travel, uniforms, travel, associate relations, general liability
insurance and other insurance required by this Agreement, cost of working
capital, and miscellaneous administrative expenses. Including in the Operational
Administrative Expenses is the allocation of the cost of a Director of
Operations. The Director's allocation is based on the actual cost of the
Operations Director's salary, benefits, and travel & expenses apportioned to the
sites for which the Director has responsibility based on the total revenue of
each operation.
Any interest or working capital costs included herein are currently computed
based upon an eight percent (8%) interest rate. This interest rate is subject to
adjustment and change, based upon Exel's internal operating procedures.
Neither the Fixed Costs nor Variable Costs contain any allocations of expenses
other than those described above. All other allocated costs are considered part
of the eight percent (8%) overhead cost included in the Cost Plus 16% amount
(other than direct costs exclusively related to the operation of the Facility,
such as health insurance and other insurance costs (for employees of the
Facility or the Facility itself), which are charged directly to the Customer
based upon actual cost, and are not therefore considered to be allocations).
VARIABLE COSTS
Variable Costs (at Cost Plus 16%) will be invoiced within five working days of
the last day of the month. Variable Costs are those other costs not noted as
Fixed Costs. Services outside the Scope of Services (as described in Exhibit B)
will be billed as variable costs. Exel, at Favorite Brands written request, will
provide Favorite Brands appropriate documentation to support the amount of such
Variable Costs. Variable Costs include, but are not limited to, the following:
Hourly Labor and Benefit - Includes all wage and benefit costs associated with
------------------------
all hourly warehouse, sanitation and clerical labor.
Equipment Maintenance and Fuel - This includes all equipment maintenance and
------------------------------
fuel expenses.
Operational Supplies - Includes shipping, warehouse, computer and office
--------------------
supplies.
Post Cost Plus Period
---------------------
Thirty days prior to the end of the Cost Plus Period, Exel and Favorite Brands
will agree to an alternative compensation arrangement. In the event the parties
do not agree to an alternative compensation arrangement 30 days prior to the end
of the second month of normal operations, the Cost Plus 16% compensation
structure will continue until 30 days agreement is reached by
(10)
both parties of an alternative compensation arrangement. If no such agreement is
reached within 60 days (or such longer period as the parties mutually agree)
after the end of the second month of normal operations, either party shall have
the right to terminate the Agreement in accordance with Section 5(b) of the
Agreement, provided that Section 29 of the Agreement will apply to any such
termination. Any agreed alternative compensation arrangement will be documented
and executed by an amendment to this Exhibit C of the Agreement. Any such agreed
alternative compensation arrangement will include a cap on increases in the
variable rates of no more than five percent (5%) per year from the previous
year's variable costs; provided that if the actual costs increase more than five
percent (5%) in one year and less than 5% in a later year, Excel may increase
the variable price, up to 5%, in order to recover any actual loss from a prior
year cause by the cap on increases.
DAMAGE AND SHRINKAGE ALLOWANCE
------------------------------
The parties agree upon the following annual damage and shrinkage allowance:
DAMAGE ALLOWANCE: An allowance of .5% in Year 1, .25% in Year 2 and thereafter
of the annual throughput of Product (Product received and shipped divided by 2).
SHRINKAGE ALLOWANCE: An allowance of .25% of annual throughput of Product
(Product received and shipped divided by 2).
(11)
EXHIBIT "D"
OPERATING PARAMETERS
The following Operating Parameters represent the assumptions and expectations of
Exel Logistics and Favorite Brands relative to the operation of the Facility.
They form the basis for the sizing, staffing and costing of the operations.
Favorite Brands Los Angeles
------------------------------------------------------------------------------------------------------------------------------------
Description Combined FBI/Xxxxxx Xxxxxxx
------------------------------------------------------------------------------------------------------------------------------------
Year One Throughput Volume in Pounds 103mm 88.6 14.4
------------------------------------------------------------------------------------------------------------------------------------
Annual Growth Rate 5% 5% 5%
------------------------------------------------------------------------------------------------------------------------------------
Average Weight per Pallet
------------------------------------------------------------------------------------------------------------------------------------
. Inbound 955 955 955
------------------------------------------------------------------------------------------------------------------------------------
. Outbound 955 955 955
------------------------------------------------------------------------------------------------------------------------------------
Average Cases per Pallet 157 122 222
------------------------------------------------------------------------------------------------------------------------------------
Pallet Height/Configuration 55 52.2 55.2
------------------------------------------------------------------------------------------------------------------------------------
Average Pallets in Inventory 6816
------------------------------------------------------------------------------------------------------------------------------------
Total Number of Active SKU's 4500
------------------------------------------------------------------------------------------------------------------------------------
Average Number of SKU's on Hand in Inventory 555
------------------------------------------------------------------------------------------------------------------------------------
Percent of "A" SKU's by weighted average volume 38
------------------------------------------------------------------------------------------------------------------------------------
Percent of "B" SKU's by weighted average volume 13
------------------------------------------------------------------------------------------------------------------------------------
Percent of "C" SKU's by weighted average volume 49
------------------------------------------------------------------------------------------------------------------------------------
Number of Turns -- "A" Products 12 12 12
------------------------------------------------------------------------------------------------------------------------------------
Number of Turns -- "B" Products 8 8 8
------------------------------------------------------------------------------------------------------------------------------------
Number of Turns -- "C" Products 26 26 26
------------------------------------------------------------------------------------------------------------------------------------
% of Case Pick (by product line) 48% 70%
------------------------------------------------------------------------------------------------------------------------------------
Average pounds per case (by product line) 15 17.9 11.6
------------------------------------------------------------------------------------------------------------------------------------
Average pounds per truckload (inbound) 32.4k 32.4k 32.4k
------------------------------------------------------------------------------------------------------------------------------------
Average pounds per truckload (outbound) 25k 25k 25k
------------------------------------------------------------------------------------------------------------------------------------
Peak to average volume ratio 1.55 1.55 1.55
------------------------------------------------------------------------------------------------------------------------------------
Average number of outbound orders per day
------------------------------------------------------------------------------------------------------------------------------------
Average number of line items per order 4.9 35
------------------------------------------------------------------------------------------------------------------------------------
Average number of units per order
------------------------------------------------------------------------------------------------------------------------------------
Maximum throughput volume per day before overtime
charge
------------------------------------------------------------------------------------------------------------------------------------
Lowest pick unit is a full case Yes Yes Yes
------------------------------------------------------------------------------------------------------------------------------------
All inbound product is received on pallets Yes Yes Yes
------------------------------------------------------------------------------------------------------------------------------------
Inbound pallets arrive with one item per pallet Yes Yes Yes
------------------------------------------------------------------------------------------------------------------------------------
Product is received in good condition & labeled Yes Yes Yes
accurately
------------------------------------------------------------------------------------------------------------------------------------
All inbound is via truck True True True
------------------------------------------------------------------------------------------------------------------------------------
There are no hazardous materials True True True
------------------------------------------------------------------------------------------------------------------------------------
Favorite Brands will supply pallets for storage & Yes Yes Yes
------------------------------------------------------------------------------------------------------------------------------------
(12)
--------------------------------------------------------------------------------------------------------
shipment
--------------------------------------------------------------------------------------------------------
Exel's warehouse management, inventory control, & Yes Yes Yes
order processing systems will be utilized within
the Facility
--------------------------------------------------------------------------------------------------------
Average Order Lead Time
--------------------------------------------------------------------------------------------------------
. Make to Stock 7 days 7 days 7 days
--------------------------------------------------------------------------------------------------------
. Make to Order 21 days 21 days 21 days
--------------------------------------------------------------------------------------------------------
(13)
EXHIBIT "E"
EXEL EQUIPMENT
Exel will be required to purchase and/or lease equipment to support the start up
and ongoing business requirements for Customer. This equipment can be separated
into three distinct categories. They are as follows:
OPERATIONAL MATERIAL HANDLING EQUIPMENT
This equipment will be purchased and/or leased and utilized at the Facility to
support the receiving storing and shipping of Favorite Brand Product. All leases
for equipment shall be with independent third parties unrelated to Exel. The
acquisition cost of the equipment will be depreciated utilizing a straight line
depreciation method in accordance with normal accounting standards for each
equipment type as set forth below. The monthly depreciation and interest expense
will be included, as applicable, as a Fixed Cost. Compensation for this expense
will be invoiced as outlined in Exhibit C of this Agreement.
Item Asset Life Est. Cost
---- ---------- ---------
5-5000 lb. Sit down lift trucks 7 years $ 107,460
8-Electric Double Pallet Jacks 7 years 56,592
1-Manual Pallet Xxxx 7 years 702
1-Electric Sweeper Scrubber 5 years 31,482
1-Cascade Pull-Pac 5 years 8,316
1-Battery Extractor 7 years 10,260
1-Strechwrapper 5 years 14,580
31-Batteries 5 years 82,485
16-Chargers 5 years 36,720
Total $ 348,597
If the parties determine that it is necessary to install racking at the Facility
or to use order pickers, this schedule shall be amended to reflect the cost and
asset life of such racking and/or order pickers.
ADMINISTRATIVE EQUIPMENT
This equipment will be purchased and utilized in the office area for Favorite
Brands and will support the administrative workflow process. As with the above,
acquisition cost of the equipment will be depreciated over the normal asset
life, utilizing a straight-line depreciation method in accordance with normally
accepted accounting standards. All monthly depreciation and interest
(14)
expense will be included, as applicable, as a Fixed Cost and invoiced as
outlined in Exhibit C of this agreement.
Item Asset Life Est. Cost
---- ---------- ---------
1-Office Copier and Fax 5 years $ 10,500
Office Furniture 7 years $ 15,750
5-Cubicals 7 years $ 18,375
4-PC's and/or printers 3 years $ 24,051
Phone System 5 years $ 38,397
--------
TOTAL $107,073
WAREHOUSE MANAGEMENT SYSTEM HARDWARE AND NON-PROPRIETARY SOFTWARE
The following is a list of hardware and non-proprietary software required to
support the Favorite Brands operation. As with the above, the acquisition cost
of the equipment will be depreciated over the normal asset life, utilizing a
straight-line depreciation method in accordance with normally accepted
accounting standards. The equipment listed below is required to initially
establish Customer on TOPEX. Monthly depreciation and interest expense will be
included, as applicable, as a fixed cost. Compensation for this expense will be
invoiced as outlined in Exhibit C of the Agreement. In no event shall Customer's
payment of depreciation expenses with respect to hardware or software necessary
to support Customer's use of TOPEX be considered a license or right for
Customer's continued use of TOPEX after the termination of this Agreement.
Item Asset Life Est. Cost
---- ---------- ---------
1- AS/400 (1/2 cost in Dallas & LA) 5 years $ 50,507
4- Personal Computers 3 years 12,084
30- Patch & Printer Cables 5 years 199
7-HP Jet Direct Cards 5 years 2,107
2- Nethoppers 5 years 3,604
2- Modems 5 years 371
3- 4247 Printers 3 years 7,632
2- 6400 Printers 3 years 12,296
2-HUBS 5 years 1,249
4- Transceivers 5 years 233
2- Terminators 5 years 28
4-PC Software 3 years 2,210
10-Client Access Software 3 years 2,523
Advantis Line Installation (56k) 3 years $ 3,180
(15)
TOTAL $98,223
THE FOLLOWING IS A LIST OF ASSETS WHICH ARE LOCATED IN THE FACILITY
-------------------------------------------------------------------
AND SUPPLIED BY FAVORITE BRANDS:
--------------------------------
Office Equipment and furniture for Customer's on-site representative BPCS
------
systems equipment
(16)
EXHIBIT "F"
START-UP COSTS
NON-CAPITALIZED START-UP COSTS
------------------------------
All start-up costs will be billed to Favorite Brands as incurred. Exel will
invoice Favorite Brands by the 5/th/ day of the month for the prior month's
expenses, at a rate of Cost Plus 16% margin, calculated as described in Exhibit
C of this Agreement.
An estimate of the start-up cost for the implementation of the information
technology systems is included below with the appropriate margin included in the
cost.
Facility Wiring and Set-up $ 14,285
Implementation Staff Airfare 7,145
Implementation Staff Accommodations 34,185
Travel/Accommodations (Hardware PM) 1,895
Travel/Accommodations (Development) 1,895
Shipping/Misc. 595
---------
TOTAL SYSTEM RELATED START-UP EXPENSE $ 60,000
An estimate of the Non-system related start-up cost is included below with the
appropriate margin included in the cost.
Temporary wall for cooling 5,000
Recruiting Costs 8,952
Warehouse Prep Temp Space 3,000
Warehouse Prep Permanent Space 10,000
Warehouse Security System Permanent 3,095
Product Transfer to Permanent Space (Handling) 8,200
Project Management 46,400
Security/Equipment Operations for Temporary Space 18,000
Personnel Training 14,132
Permits and licenses 1,500
------
TOTAL NON-SYSTEM RELATED $118,279
The amounts included above are purely estimates and are not intended to be
actual amounts charged to Favorite Brands, actual expenses (with the appropriate
margin) will be billed to and paid by Favorite Brands.
(17)
CAPITALIZED START-UP COSTS
--------------------------
Included in the monthly fixed rate (as described in attachment C of this
document) are start-up costs associated with the Software Development and
Implementation of the Warehouse Management system. These costs will be
capitalized and amortized, and will include Exel's margin as calculated on
Exhibit C. The estimated costs (without margin) are set forth below:
DEVELOPMENT
-----------
Asset Life Est. Cost
---------- ---------
IT Implementation (Rollout) 3 years $ 7,200
Support User Acceptance Test 3 years 14,400
Post Implementation Support 3 years 19,200
IMPLEMENTATION
--------------
Hardware Project Manager 3 years $ 8,200
Lead Project Implementation Mgr. 3 years 8,000
Secondary Project Implementation Mgr. 3 years 3,200
System Validation (MITC) 3 years 8,000
System Validation (on site) 3 years 3,200
TOPEX Implementation support (MITC) 3 years 16,000
TOPEX Implementation support (on site) 3 years 6,400
TOPEX Training (MITC) 3 years 12,000
TOPEX Training (on site) 3 years 4,800
Hardware Analysis, Testing, Impl. 3 years 15,290
---------
TOTAL $ 125,890
If the total Start-up Costs exceed those listed above, Exel shall forgo its 8%
net margin on all costs above the total listed above, but shall be entitled to
its full margin on the costs set forth above, regardless of the total start-up
costs incurred.
(18)
